Wednesday, May 26, 2010

FTC Closes Investigation into Google-AdMob Merger

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC will not challenge Google’s proposed acquisition of mobile advertising network company AdMob under federal antitrust law. After thoroughly reviewing the deal, the agency decided that it was unlikely to harm competition in the emerging market for mobile advertising networks.

Mobile ad networks, such as those provided by Google and AdMob, sell advertising space for mobile publishers, who create applications and content for websites configured for mobile devices, primarily Apple Inc.’s iPhone and devices that run Google’s Android operating system.

By "monetizing" mobile publishers’ content through the sale of advertising space, mobile ad networks play a vital role in fueling the rapid expansion of mobile applications and Internet content.

Apple’s Market Entry

In a May 21 statement issued in conjunction with the closing of its investigation into the transaction, the Commission said that, although combination of the two leading mobile advertising networks raised serious antitrust issues, the agency’s concerns ultimately were overshadowed by recent developments in the market, most notably the move by Apple to launch its own, competing mobile ad network.

In addition, a number of firms appear to be developing or acquiring smartphone platforms to better compete against the iPhone and Android systems. These firms would have a strong incentive to facilitate competition among mobile advertising networks, according to the FTC.

"As a result of Apple’s entry [into the market], AdMob’s success to date on the iPhone platform is unlikely to be an accurate predictor of AdMob’s competitive significance going forward, whether AdMob is owned by Google or not," the Commission’s statement explained.

Questions about Transaction

According to the FTC’s statement, evidence gathered by the agency raised important questions about the transaction. Google and AdMob have competed head-to-head for the past few years, with a notable increase in intensity during the past year. This competition has spurred innovation and allowed mobile publishers to keep a large share of the revenue generated from the sale of their ad space. The companies also have economies of scale that give them a major advantage over smaller rivals in the business, the statement says.

These concerns, however, were outweighed by recent evidence that Apple is poised to become a strong competitor in the mobile advertising market, having recently acquired Quattro Wireless and used it to launch its own iAd service.

In addition, Apple could leverage its close relationships with application developers and users, its access to a large amount of proprietary user data, and its ownership of iPhone software development tools and control over the iPhone developers’ license agreement to compete effectively.

The FTC announcement appears here on the Commission’s website, along with a statement, a closing letter to counsel for Google, Inc. and a closing letter to counsel for AdMob, Inc. These documents appear at CCH Trade Regulation Reporter ¶16,453.

Concerns About Combination

The Commission made its decision, despite public expressions of concerns that the combination would allow Google to leverage its dominance of the search advertising market into the emerging mobile advertising market.

On April 6, Senator Herb Kohl (D, Wis.) sent a letter to FTC Chariman Jon Leibowitz, urging the agency to closely scrutinize the acquisition. (See Trade Regulation Talk, April 8, 2010 posting).

Senator Kohl cautioned that the combination could result in higher mobile advertising prices and lower revenues for applications developers. The stakes were high in an emerging market where revenues are predicted to increase from $416 million in 2009 to $1.56 billion in 2013.

Kohl urged the Commission to safeguard consumer privacy if the deal were approved, since the combined company would gain access to “a treasure trove of data on millions of consumers’ behavior, search and product preferences.”

1 comment:

mobiThinking said...

The FTC statement (though not the result of the investigation, necessarily) was disappointing.
The six long months of media hype, misinformation, speculation and groundless predictions about the outcome of the investigation has reinforced just how little is known or understood about the mobile advertising business. With the unprecedented knowledge that this investigation ought to have amassed in order to come to a satisfactory conclusion, the FTC was in the perfect position to plug this knowledge gap. Perhaps the FTC doesn't see education as part of its remit, but surely it is the FTC's duty to help people understand the decision and to explain the extent of the investigation. The danger of not doing so is that its decision will now be questioned and, worse, commentators will wonder whether the FTC actually understood the true nature of the market.